California Governor Faces Backlash as Wealth Tax Proposal Targets Millionaires

California lawmakers are drafting a tax proposal so aggressive that wealth managers across the state have quietly begun moving client assets out of the jurisdiction.

High-net-worth individuals are establishing residency in Nevada, Texas, and Florida at rates not seen since the pandemic, and the tax hasn’t even passed yet.

What’s being discussed behind closed doors in Sacramento could trigger the largest voluntary wealth migration in American history.

The consequences won’t just hit billionaires; they’ll reshape California’s entire fiscal foundation, and most people have no idea it’s coming.

California is considering a wealth tax on residents with a net worth exceeding $50 million, plus an exit tax on unrealized capital gains for those who leave the state.

This combination has never been attempted at the state level in the United States.

Let’s start with what’s actually on the table.

Multiple proposals are circulating in the California State Legislature right now.

The most aggressive version targets individuals with a net worth above $50 million—total assets minus liabilities.

Real estate, stocks, business ownership, art collections—everything counts.

The proposed tax rate ranges from 0.4% to 1.5% annually on total wealth, not just income.

This represents a fundamental departure from how America taxes its citizens.

Here’s how it differs from income tax: income tax hits what you earn in a given year, while wealth tax hits what you own regardless of whether those assets generated income.

If you own a $100 million portfolio that didn’t sell anything this year, you owe wealth tax anyway.

That’s the core mechanism.

Now, here’s the part that makes this unprecedented: some versions of the proposal include an exit tax.

If you’re a California resident subject to the wealth tax and you move to another state, California would assess a one-time tax on unrealized capital gains.

That means gains on assets you haven’t sold yet.

You could move to Texas, and California could send you a tax bill for the appreciation in your stock portfolio even though you never cashed out.

The legal framework for this involves something called the look-back period.

If you were a California resident for a certain number of years, the state claims the right to tax wealth accumulated during that period, even after you leave.

Estimates suggest this could affect between 30,000 and 75,000 California residents, depending on which version moves forward.

That’s a small percentage of the population, but they currently pay a disproportionate share of state tax revenue.

Why does this matter to you if you’re not in that wealth bracket?

Because California’s top 1% of earners currently contribute roughly 40 to 50% of personal income tax revenue.

When that group shrinks or leaves, the burden shifts.

Services get cut, or taxes go up on everyone else.

This isn’t theory; it’s math.

1. California’s Fiscal Volatility:

California’s budget operates like a roller coaster tied directly to the fortunes of its wealthiest residents.

In good years, when stock markets surge and tech IPOs recapitulate gains, Sacramento sees record surpluses.

In 2022, the state posted a $97 billion surplus.

Eighteen months later, that flipped to a $68 billion deficit—a staggering $165 billion swing in less than two years.

The problem is structural.

California relies more heavily on income taxes than almost any other state, and income taxes from the top 1% are wildly volatile because they come from capital gains, stock options, and business sales.

When markets correct, revenue collapses.

Lawmakers are tired of this roller coaster.

A wealth tax, in theory, would create a more stable revenue stream because wealth doesn’t fluctuate as dramatically as annual income.

But here’s the catch: wealth can move.

2. Widening Inequality and Political Pressure:

California has both the richest billionaires and some of the highest poverty rates in the country.

That contrast creates political tension.

Voters see homeless encampments blocks away from venture capital offices and housing prices that make home ownership impossible for median earners.

Progressive lawmakers argue that concentrated wealth isn’t just an economic issue; it’s a moral one.

Polling data shows that wealth taxes poll surprisingly well, even among moderate voters.

People intuitively understand the difference between someone making $200,000 a year and someone with $200 million in assets.

The political appetite for taxing extreme wealth has grown significantly since 2020, and lawmakers are responding to that pressure.

But popular doesn’t mean effective, and that’s where the policy debate gets complicated.

3. Corporate Headquarters Exodus Created Revenue Gap:

You already know the story: Oracle left, Hewlett Packard Enterprise left, Tesla’s headquarters moved to Texas, and Charles Schwab relocated.

CBRE, the world’s largest commercial real estate firm, moved to Dallas.

Each departure didn’t just remove a corporate address; it removed high-income executives, their income taxes, and the economic activity that surrounded them.

Between 2020 and 2023, over 350 companies relocated their headquarters out of California.

IRS data shows that $102 billion in adjusted gross income left the state in that same period.

That’s not small business owners; that’s significant wealth leaving permanently.

The state’s response has been to look for revenue sources that are harder to move.

Wealth tax proponents argue that even if people leave, California can tax the wealth they accumulated while living here.

That’s the exit tax component, designed to prevent what economists call tax flight.

4. Federal Wealth Tax Discussions Normalized the Idea:

Five years ago, a state-level wealth tax seemed politically impossible.

Then Senator Elizabeth Warren proposed a federal wealth tax during the 2020 presidential campaign, and Senator Bernie Sanders proposed an even more aggressive version.

Suddenly, the idea entered mainstream political discourse.

Academic economists at Berkeley and other institutions published detailed studies on implementation.

The concept shifted from fringe to debatable.

California lawmakers took note: if it’s being discussed at the federal level, why not try it at the state level first?

California has always seen itself as a policy laboratory, and this fits that tradition.

But there’s a critical difference: you can’t easily leave the United States.

5. Europe Tried It and California Thinks It Can Do It Better:

France implemented a wealth tax in the 1980s but repealed it by 2017 due to wealthy citizens leaving in droves.

An estimated 42,000 millionaires departed France between 2000 and 2012.

The wealth tax generated far less revenue than projected because the tax base literally moved to Belgium, Switzerland, and London.

Sweden tried it and repealed it; Norway still has a version, but debates rage about whether it’s economically sustainable.

So why would California try something that failed in Europe?

Lawmakers argue that California is different.

It has unique economic advantages, technology clusters, venture capital networks, and an entertainment industry.

The argument goes that people live in California because they want to, not just because of taxes.

Wealthy individuals won’t leave over a 1% annual wealth tax when they’re already paying high income taxes and love living in Malibu or Atherton.

But that assumption has never been tested at this scale, and recent corporate exits suggest it might be wrong.

Let me walk you through three scenarios based on how this could actually play out.

Best-case scenario: modified proposal with revenue success.

In this version, California passes a scaled-back wealth tax that targets only ultra-high-net-worth individuals—maybe those above $500 million, not $50 million.

The rate stays under 0.5%, and the exit tax gets dropped or significantly softened after legal challenges.

A small percentage of affected individuals leave, but most stay because their businesses, networks, and lives are deeply rooted in California.

The state generates $3 to $5 billion in new annual revenue, which gets dedicated specifically to housing, infrastructure, or education, creating a visible public benefit.

Voters see results.

The tax doesn’t devastate the economy, and California successfully threads the needle between progressive taxation and economic pragmatism.

This scenario requires perfect political execution, strong legal defense, and continued economic growth.

It’s possible, but it’s the optimistic path.

Base-case scenario: partial exodus and legal battles.

This is the more likely outcome.

California passes a wealth tax targeting individuals above $50 to $100 million, and the exit tax component passes in some form.

Immediately, legal challenges hit the courts.

Constitutional questions arise about whether states can tax residents after they leave.

Does this violate the commerce clause?

Does it infringe on the constitutional right to travel?

Lawsuits take years to resolve.

In the meantime, a significant percentage of affected individuals begin changing their primary residency—not all of them, but enough to matter—maybe 20% to 30% of the target population.

They don’t have to renounce California entirely; they just have to establish domicile elsewhere.

That means spending 183 days a year outside California, changing driver’s licenses, voter registration, and primary residence documentation.

Nevada, Texas, and Florida see a surge in luxury real estate purchases, and wealth management firms open new offices in Las Vegas and Austin specifically to serve California transplants.

The state collects some wealth tax revenue, but far less than projected—maybe $2 billion instead of $6 billion.

The budget hole doesn’t get filled, leading to cuts in services or tax hikes on the middle class.

Political backlash grows, and venture capital activity begins shifting—not overnight, but gradually.

New funds get headquartered in Miami or Austin, and startups incorporate in Delaware but operate from outside California.

The state’s economic dominance in tech erodes slowly—not catastrophically, but noticeably.

Five years later, economists debate whether the wealth tax was worth it.

The answer is ambiguous.

Worst-case scenario: accelerated wealth flight and economic contraction.

In this scenario, California passes an aggressive wealth tax with a strong exit tax provision.

The very announcement triggers a mass reaction.

High-net-worth individuals don’t wait for implementation; they begin relocating immediately.

Wealth managers recommend that all clients subject to the tax establish domicile elsewhere as a precautionary measure.

Within the first two years, 40% to 50% of the target population leaves.

That’s not just individuals; it’s their family offices, foundations, and investment activity.

It’s the entrepreneurs who would have started the next company in Palo Alto.

It’s the venture capital limited partners who fund Silicon Valley firms.

California collects minimal revenue because the tax base evaporated before the bills went out.

The exit tax faces immediate legal injunctions, and courts put it on hold pending constitutional review.

The state fights for years but ultimately loses.

By then, the damage is done.

The state share of U.S. venture capital drops from 50% to 35%.

Fortune 500 headquarters in California decline from 58 to 45.

Real estate values in wealthy enclaves like Atherton and Newport Beach drop 20% to 30% as luxury properties flood the market.

The state budget deficit worsens because income tax revenue from the top 1% collapses.

California enters a fiscal crisis requiring federal intervention or drastic austerity measures.

Public services degrade, and the middle class sees tax increases and service cuts simultaneously.

This is the nightmare scenario that critics of the wealth tax warn about.

How likely is it?

It depends entirely on how aggressively the policy gets implemented and how the legal battles resolve.

But the risk is real.

France experienced a version of this; California could, too.

If you’re not in the $50 million net worth category, you might think this doesn’t affect you.

You’re wrong.

Here’s what you should be monitoring and why it matters.

Watch state budget projections.

California publishes budget forecasts multiple times a year.

Pay attention to revenue projections from personal income taxes.

If those numbers start declining faster than expected, that’s your early warning signal.

The state will need to make up that revenue somehow, which means either cutting services you rely on or raising taxes on everyone else.

Property taxes, sales taxes, and fees could all go up if wealthy taxpayers leave.

Track high-profile departures.

When a billionaire or major business figure announces they’re leaving California, that’s not just celebrity news; it’s an economic indicator.

If Elon Musk, Reid Hoffman, or Lauren Powell Jobs change their primary residency, that tells you something about how the wealthy are reacting to California’s tax environment.

These aren’t impulsive decisions; they’re backed by teams of accountants and lawyers.

When that caliber of wealth moves, others follow.

Monitor luxury real estate markets.

Check listings in areas like Atherton, Beverly Hills, La Jolla, and Newport Beach.

If you see a sudden increase in luxury properties for sale, that’s a concrete signal that wealth is leaving.

Real estate agents in these areas will tell you what’s happening on the ground.

Are buyers mostly from out of state?

Are locals selling to move elsewhere?

This data is publicly available and tells the truth.

Understand your own tax exposure.

Even if you’re middle class, California’s tax structure affects you.

If the wealth tax fails to generate projected revenue, the state will look for other sources.

That could mean higher income taxes on the upper middle class, increased sales taxes, or new fees on services.

Property taxes could be reassessed, and vehicle registration fees could go up.

The state has many tools to raise revenue, and they’ll use them if necessary.

Follow the legal challenges.

Multiple lawsuits will challenge the wealth tax, especially the exit tax.

These cases will determine whether the policy survives.

Follow organizations like the California Taxpayers Association, the Howard Jarvis Taxpayers Association, and legal foundations that track these cases.

Court rulings will tell you whether this policy has a future or will get struck down.

Plan accordingly.

If you’re mobile—a business owner, entrepreneur, or someone with location flexibility—this is the time to evaluate your options.

You don’t have to leave California, but understanding the tax implications of where you live and work is part of financial planning.

If you’re considering starting a business, incorporating in Delaware and operating remotely gives you flexibility.

If you’re negotiating a job offer, remote work provisions might become more valuable if state taxes rise.

Engage politically if you care.

Whether you support or oppose the wealth tax, your voice matters.

Contact your state representatives and vote in state elections.

Local elections matter more than most people realize when it comes to tax policy.

The state legislature makes these decisions.

If you care about this issue, participate in the process.

Let’s recap what we covered.

California is considering a wealth tax on individuals with a net worth above $50 million, plus an exit tax on those who leave.

The goal is to stabilize state revenue and address wealth inequality.

But European countries tried similar policies and most repealed them due to wealth flight.

Three scenarios are possible: a successful scaled-back version that generates revenue; a messy middle ground with partial exodus and legal battles; or a worst-case acceleration where wealth flees the state and tax revenue collapses.

None of these outcomes is certain yet, but the decisions being made right now in Sacramento will shape California’s economy for decades.

This isn’t just about billionaires; it’s about who pays for California’s roads, schools, and public services.

It’s about whether the state can maintain its economic dominance while pursuing aggressive progressive taxation.

It’s about whether California’s unique advantages—its innovation ecosystem, its culture, its geography—are strong enough to keep people here despite higher taxes.

What happens in California will be watched by every other state in the country.

If this works, expect other states to follow.

If it fails spectacularly, it could set back progressive tax policy nationwide.

The stakes are enormous.